how to buy bitcoin

How to Buy Bitcoin in Canada: Step by Step

Out of all the cryptocurrencies available, Bitcoin is the most popular. Since it was launched in 2008, Bitcoin has gained a market capitalization of $1.1 trillion, making it the most expensive crypto coin on the market. Bitcoin’s worth is projected to increase even further. As a result, more people are turning to Bitcoin as a new way to invest their money. Bitcoin is also becoming a valid form of currency. As a result, some businesses are starting to accept it as a valid form of payment.

Buying Bitcoin can seem like a daunting task. You may not know where to begin. This starter guide will help you enter the world of Bitcoin investing. We’ll provide you with a step-by-step tutorial on how to buy Bitcoin in Canada. But first, lets look at what exactly are cryptocurrencies.

What is a cryptocurrency?

Cryptocurrencies basically are digital forms of money. They are entirely digital currencies that are used as online versions of cash. With a cryptocurrency, you can buy almost anything online. Their transactions are highly secure. For example, governments or regulating bodies cannot easily prevent a cryptocurrency transaction. Cryptocurrencies are usually bought and sold using a crypto online exchange site. We’ll look at these platforms later in the guide.

Cryptocurrencies operate through a technology called blockchain. This is a decentralized technology spread across multiple computers that manage and record transactions. Blockchain is popular for its strong security. Because it is spread out between several computers, there is no single computer that stores the blockchain. This makes it harder for it be hacked.

Here is a chart on the market value of various cryptocurrencies:

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How to buy Bitcoin

For this guide, we split the Bitcoin buying process into four steps. But before you begin, ask yourself “how much do I want to spend on Bitcoin?” Bitcoin is very expensive, and it is a risky asset. You stand to make a lot of or lose all of your investment in Bitcoin. Therefore, we recommend you spend only what you can afford to lose on Bitcoin.

For this guide, we split the Bitcoin buying process into four steps. But before you begin, ask yourself “how much do I want to spend on Bitcoin?” Bitcoin is very expensive, and it is a risky asset. You stand to make a lot of or lose all of your investment in Bitcoin. Therefore, we recommend you spend only what you can afford to lose on Bitcoin.

Step 1: Determine Where You Want to Buy Bitcoin

There are many places where you can purchase Bitcoin. As we mentioned earlier, the most common are cryptocurrency exchanges. This is where people buy, sell, and trade cryptocurrencies like Bitcoin. Crypto exchanges also allow you to trade cryptocurrencies for assets like traditional money (also known as fiat money). Once you have bought/traded for Bitcoin, many exchange sites will hold your cryptocurrency until you deposit it into your own personal Bitcoin wallet.

Crypto Exchange Types

There are two types of cryptocurrency exchanges. The first are trading platforms. These sites automatically connect buyers and sellers. Since trading sites have low fees, this a cheaper form of buying Bitcoin. However, trading platforms are for more experienced traders. All the technical terminology used on trading sites can confuse novice Bitcoin buyers.

The second type of exchange, brokerage sites, simplify the process. These sites let you buy Bitcoins through them at predetermined prices. The trade-off for this simplified approach is that broker sites charge higher fees.

When choosing a cryptocurrency exchange, consider the following. First, does the exchange accept customers from your country? Not all exchanges accept customers from every part of the world. Second, know the exchange’s accepted payment methods. Some exchanges allow all payment types, while others restrict the ways you can pay. Third, know the fees for transacting, depositing, and withdrawing Bitcoin. Fourth, know the exchange rates. Some sites will have high exchange rates, which cut into the profit you might make from Bitcoin. Fifth, learn about the exchanges buying limits. Some exchanges allow to buy large amounts of Bitcoin while others restrict the amount. Last, research the exchange’s reputation to determine if it is a reputable, trustworthy company.

When buying/selling through cryptocurrency exchanges, we recommend you stick to regulated ones. Unregulated exchange sites can hold or drain your assets without your knowledge or consent. Regulated exchange sites are much safer sense they provide users with added security measures. Another important thing to note is that some international exchanges do not accept the Canadian Dollar (CAD). This results in high exchange fees. Based on this, Canadian Bitcoin buyers should stick with Canadian cryptocurrency exchanges. With a Canadian exchange, you don’t have to deal with expensive fees or long transaction periods.

Once you’ve signed up for an exchange, you’ll go through a registration process, managed by Know Your Customer (KYC). KYC is a financial regulation used to prevent money laundering in various monetary industries. With KYC, you’ll have to provide the exchange with information like a valid form of ID and proof of residence.

 

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(Screenshot: The homepage of cryptocurrency exchange Binance)

Some popular cryptocurrency exchanges are Binance, Bitbuy, Coinbase, and Kraken.

Other Places to Buy Bitcoin

Outside of Cryptocurrency exchanges, there are several different ways to buy Bitcoin.

Bitcoin ATMs are just like the regular ATMs you see in malls or convenience stores. Only instead of receiving regular cash, you get Bitcoins. Instead of connecting to a bank, Bitcoin ATMs connect to cryptocurrency exchanges. Like regular ATMs, Bitcoin ATMs accept debit or credit cards. Some Bitcoin ATMS also allow you to sell Bitcoin. This mode of Bitcoin buying is fairly new. Therefore, you’ll won’t find Bitcoin ATMs in abundance yet. They also charge high fees and can have poor exchange rates.

Over the counter trading (OTC) occurs outside of exchanges. It is a discreet form of Bitcoin buying. Their trades aren’t registered on a public ledger, making it harder for regulatory groups to review them. Another alternate trading method are Peer-to-Peer (P2P) networks. These sites let people directly trade with one another, eliminating the need for a bank or brokerage.

ETFs

In Canada, you can buy Bitcoin through an ETF (exchange-traded fund). ETFs are groupings of individual stocks, or government and corporate bonds that you gain in a single purchase. They track the performance of your assets. Essentially, Bitcoin ETFs emulate the price of Bitcoin. This means that when you purchase the ETF, you are actually buying Bitcoin. Some people like Bitcoin ETFs because they simplify the buying process. You don’t have to deal with exchanges and KYC verification. You also don’t have to worry about storing your Bitcoin.

Another positive for Bitcoin ETFs is that they can be deposited in tax-advantaged accounts, like RRSPs and TFSAs. While Bitcoin ETFs are convenient and come with tax advantages, they do not provide you with physical ownership of Bitcoin. You are entrusting someone else with holding your Bitcoins. If that person or group turns out to be untrustworthy, then you’ll lose all of your Bitcoin investment. The sovereignty of Bitcoin ownership is lost when you purchase a Bitcoin ETF.

This video by WiteBoard Finance gives a good explanation of Bitcoin ETFs.

Lastly, you can buy Bitcoin in person. When doing this, try to verify the seller’s identity. This will reduce the likelihood of you getting scammed.

Step 2. Determine How You Want to Pay

Once you’ve selected where you want to buy Bitcoin, decide how you want to pay. There are several ways to pay for Bitcoin. You can pay using debit or credit cards, Interac e-transfer or wire transfers, or other cryptocurrencies. If you are buying in person, cash may be accepted as payment.

Step 3. Determine How You Want to Store your Bitcoins

Once you’ve purchased your chosen amount of Bitcoin, the next step is to store them away for safe keeping. A common way people store Bitcoins is with a bitcoin wallet. Just like regular wallets, bitcoin wallets hold all of your crypto currencies. They can come in many forms, such as mobile devices, desktop and laptop computers, USB sticks, or even on pieces of paper.

A Bitcoin wallet will come with a private key. Private keys are sets of numbers that act as a password to your bitcoin wallet. Think of it as the pin number to a debit or credit card. Whoever knows the private key can access your Bitcoin wallet. Private keys also generate your public Bitcoin address. This is something you sent to others when you want to buy Bitcoin from them.

Hot vs. Cold Wallets

Bitcoin wallets can be split into two categories. The first one is hot wallets. This means that the wallet is connected to the internet; your private keys are stored online. Common forms of hot storage are websites or cloud wallets. These wallets are highly convenient because they allow you to transact Bitcoin at a moments notice.

Storing bitcoin online comes with many security risks. First, there is always the danger of your account being hacked by criminals. Second, you do not have direct access to your Bitcoin wallet and private keys. You’re basically intrusting a third party with your Bitcoins.

To increase security, many web or cloud wallets use Multi Factor Authentication. This security measure requires you to provide additional information besides your password to access an account. For example, a website may ask you to enter a code sent to your phone to log in. Even with this additional security measure, we recommend you do not store your bitcoins on a hot wallet. The risks are just too great.

The second Bitcoin wallet category is cold storage. These wallets store private keys offline. They can come in the form of physical hardware that you can carry with you, like USB sticks. Private keys can also be on paper. A common example is QR Codes. Cold storage is much safer than hot storage since criminals cannot easily hack into them. Still, there is the risk of losing the physical item. We recommend keeping your cold storage wallet in a safe or safety deposit box at your bank.

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Ledger is a popular cold storage Bitcoin wallet.

4. Make Your Purchase

After you have done all your preparation, it’s time to make the purchase. As we’ve noted earlier, Bitcoin transactions are fairly quick. You should expect your Bitcoins to be deposited into your exchange account within a few seconds. Once you’ve received your purchased amount, we recommend you store them immediately in your offline wallet.

Questions you may have about Bitcoin

What is Bitcoin?

Bitcoin is a type of cryptocurrency. Currently, it has the highest market value, and it is one of the most popular cryptocurrency coins in the world. Because of its value, many people like to invest in Bitcoin. Those who paid a low price for Bitcoin in 2010 may now have received thousands, even millions of dollars in return. At the time of writing (late 2021, early 2022), one bitcoin costs around $64,319.29 CAD (Canadian Dollars).

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What is Dogecoin?

Dogecoin is a “joke” cryptocurrency based on the famous doge meme. The Shiba Inu dog from the meme is the coin’s logo. Dogecoin was launched in 2013 and was promoted as a “fun and friendly internet currency”. The coin’s creators also wanted to make fun of Bitcoin and other cryptocurrencies. In comparison to Bitcoin, Dogecoin is worth considerably less. Its current market value is $29 billion USD (United States Dollars). While Dogecoin may have a smaller value than other cryptocurrencies, it still has a dedicated fanbase.

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Taken from the dogecoin website

What Can I Do with Cryptocurrencies?

Cryptocurrencies have multiple functions. You can use cryptocurrencies to buy pretty much anything. On some online stores, you may see an option to pay in crypto coins. Also, more physical businesses are beginning to accept crypto coins as valid forms of payment. However, there is a negative side to cryptocurrencies. Because of the anonymity of cryptocurrencies, some people use them to buy narcotics or other illegal materials off the internet.

Besides being a payment method, people also like to invest in cryptocurrencies. The strategy is to buy a coin at low price and hope for its price to increase. If the coin experiences a boom, then the investor can sell the coin at a high price, making a huge profit in return. There is a caveat to cryptocurrency investing. The market tends to be highly volatile, with huge spikes and sharp downturns. To get a positive return on your investment, you should study the market closely and invest only what you are prepared to lose.

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A chart of Bitcoin’s market value over the course of one year. Taken from: Cryptocurrency Prices, Charts And Market Capitalizations | CoinMarketCap

Do Canadian Banks Allow Cryptocurrencies?

Most major Canadian banks allow cryptocurrencies, but they differ on how friendly they are towards them. Most banks restrict the ways you can purchase cryptocurrencies. They will only allow certain options. For example, the Royal Bank of Canada (RBC) only allows Interac e-transfer and debit cards for crypto coin transactions. Tangerine seems to be the least favorable when it comes to cryptocurrencies. The bank only allows customers to use Interac e-transfer to purchase Bitcoin. The best bank for cryptocurrencies is National Bank of Canada. They allow all forms for crypto coin purchasing.

Here’s a table to compare Canadian banks and cryptocurrencies.

BANKS Interac e-transfer

 

Wire Transfer Debit Card

 

Credit Card

 

RBC Yes Yes No No
TD Yes Yes Yes Yes
BMO Yes Yes No No
Scotiabank Yes Yes Yes No
CIBC No No Yes No
National Bank of Canada Yes Yes Yes Yes
HSBC Yes Yes No No
Tangerine Yes No No No

Note: Scotiabank allows wire transfers only if the crypto exchange is Canadian.

Other helpful resources:

How to Buy Bitcoins in 2021? (4 different methods reviewed) – YouTube

What is a Bitcoin Wallet? (in Plain English) – YouTube

Read more

Updated date

January 11th, 2022

About the author

Nicholas Mah

Nick Mah is a writer who enjoys writing about music, movies, sports, and cooking related topics. He also enjoys reading and writing about history. In his spare time, he enjoys watching movies, reading a good book, going for long bike rides, listening to music, or playing his guitar.
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